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Sales Incentives and ROI

Conventional wisdom regarding sales incentives is that salespeople simply follow the money. And that management can get salespeople to do just about anything for the "carrot" dangled in front of them. But just how directly do sales incentive programs impact the bottom line? Is there always a positive correlation? Or do other factors (non-cash recognition, loyalty, etc.) provide more "bang" for less "bucks?"

According to a recent artile in Workforce Performance Solutions, "Dr. Srinath Gopalakrishna, associate professor of marketing at the University of Missouri has successfully isolated the economic impact or ROI of sales incentives. "

In a study sponsored by the Forum for People Performance Management and Measurement (Northwestern University), the $1 trillion spent annually on salesforce compensation and incentives appears to be well spent . It appears that sales of "incentivized" (I really hate that word) products at one company studied doubled during the incentive period, resulting in a 12% boost in ROI. In the same study, the boost in the sales of the targeted product did NOT result in cannibalization of sales of other products, a common fear of most sales executives and comp plan designers. In fact, the company got residual benefits from the incentive program after the program had ended, an unexpected bonus.

What does not work as well as managers hoped are non-cash incentives. The study found that:

"What employees most desire might not be best for optimal business results. Employees indicate a preference for cash incentives, while managers think recognition (noncash) awards are more effective in producing the desired results. "

While non-cash rewards may work well in other parts of the company, sales people are a different breed. They recognize the transactional nature of the relationship with the organizations that hire them, and for the most part (correctly) believe that if sales drop, they are gone. "Take the money and run" is not an indication of disloyalty . . . it is simply a rational response on their part. This is something their managers should never forget.

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